Two years of fruitless efforts to move banking legislation to the floor of the House of Representatives coupled with an unbroken string of failures in negotiations with industry lobbyists may be having a disastrous impact on Jim Leach's Chairmanship of the House Banking Committee.
A series of votes in July suggest that the Chairman is having difficulty in controlling his Republican troops on key votes.
On July 17, Leach joined forces with House Rules Chairman Gerald Solomon on the House floor in a surprise attack on the Comptroller of the Currency's rulemaking authority. The move was designed primarily to prevent the Comptroller from expanding the role of banks in insurance sales - something that the nation's independent insurance agents have long sought.
But, the Solomon-Leach combination produced only 107 votes with 312 members - a majority of both parties - voting against the measure.
Only seven of the Banking Committee's 28 Republican members voted with Leach.
The Banking Committee Chairman fared little better on June 25 during the markup of legislation to recapitalize the Saving Associations Insurance Fund (SAIF).
Leach had lobbied hard for a proposal that would have required that part of the cost of the recapitalization be borne by Fannie Mae and Freddie Mac, the two secondary market entities for housing mortgages. In the process, he fired off tough sounding letters to the members of the Committee and the House leadership, urging support for reaching into the pockets of Fannie and Freddie.
In Committee, he got tons of opposition from both Democrats and Republicans. After Leach's pleas, the proposal went down on a weak voice vote without the Chairman even seeking a roll call.
Later in the same markup, the members overrode the Chairman's opposition to tapping some of the surplus funds held by the Federal Reserve to help pay for the costs of the insurance fund recapitalization.
On that vote, only eight of the Committee's 28 Republican members joined their Chairman in opposing the Federal Reserve amendment. As a result, the amendment carried 22-18 with the help of 15 GOP votes. Democrats voted 9 to 7 with Leach in opposition to the use of the Federal Reserve surplus.
The July revolt against the Chairman by his party members comes in the wake of increasing rumors - and some published reports - of unrest in the Republican ranks about the failure of the Committee to move legislation to expand bank powers and rollback regulations during this Congress.
Leach's decision to join the insurance agents and Rules Committee Chairman Solomon in a frontal attack on the Office of the Comptroller of the Currency and bank insurance powers may have also alienated bankers who had worked behind the scenes during the last year in attempts to help Leach move banking legislation.
Why should African Americans vote in November for a Democratic majority in the Congress?
In an appearance on CNN's Inside Politics, Reverend Jesse Jackson identified two of the reasons as Representatives Maxine Waters of California and Henry B. Gonzalez of Texas of the House Banking Committee. The two are among Congress' strongest supporters of equal opportunity, fair lending and community investment.
Both of these members, Jackson argued, would "move up" if Democrats controlled the House with Waters in contention for a Subcommittee Chair and Gonzalez in position to resume his Chairmanship of the Committee.
Jackson's comments were especially pleasing to Gonzalez who faces the possibility that he will be challenged for the Chairmanship should the Democrats regain the majority in the House of Representatives this November.
John LaFalce from upstate New York has made no secret of his desire to take over the top spot on the Committee. And if LaFalce takes the leap, Representative Bruce Vento, of St. Paul, Minnesota - third ranking on the Committee - is expected to enter the contest.
Automatic Teller Machines (ATMs) are spewing out a lot of cash and lot of account information for consumers. Now, it appears they are providing legislative language for the Congress.
On July 30, the Financial Institutions Subcommittee, adopted a bill that would provide consumers virtually the same disclosure that banks and ATM networks already display voluntarily on the screens of most of the 25,000 ATMs located across the nation.
The disclosure bill was pushed by the Subcommittee Chair Marge Roukema and Representative Charles Schumer after consumers raised objections about surcharges imposed by ATM networks when customers use an ATM other than one owned by their bank. The surcharges have virtually doubled the cost of ATM transactions. Many consumers may have to pay nearly two dollars for a single withdrawal.
U. S. Public Interest Research Group and other consumer organizations had sought an outright prohibition of the surcharges. Instead, the Subcommittee simply codified what the banks already provide - a last-minute disclosure after the consumer begins the ATM transaction. Representative Bernie Sanders of the House Banking Committee and Senate Banking Chairman Alfonse D'Amato have introduced bills that would ban the surcharges.
If there is to be no more than a disclosure, consumer groups argued, the information should be provided in the form of a readily available list of banks that impose the surcharge and the amount of the surcharge. They also urged that the list be available on the Internet.
The groups argued that disclosure is of little value after the consumer arrives at the ATM, inserts the access card, and begins the transaction.
"The consumer deserves a fair opportunity to search out the best ATM deal in advance," Ed Mierzwinski, Consumer Program Director for U. S. PIRG, said. "The bill falls far short of providing even this minimal protection for the consumer."
A long-time community activist has suggested that pressure from Fannie Mae and Freddie Mac is delaying the release of key housing data and manipulating the goals established for purchases of mortgages in low income and minority neighborhoods by the two secondary market entities.
The issue was raised by Gail Cincotta, Chairperson of National People's Action, in testimony before Representative Richard Baker's House Banking Capital Markets Subcommittee.
Cincotta centered much of her criticism on the Department of Housing and Urban Development (HUD) which she said had failed to meet the mandates of Congress to set proper housing goals for Fannie and Freddie and to compile and release timely data on the secondary market operations.
"HUD is charged with creating access to this data, but instead has blocked access while continually acquiescing to pressure from Fannie and Freddie to lower their goals and amend definitions of targets in ways that release the entities from their public obligations to lead the market in service to low and moderate income families, minorities and minority communities," she told the Subcommittee.
Cincotta asked that the Subcommittee take action to ensure that "real, meaningful disclosure of Fannie Mae and Freddie Mac lending data for both multi-family and single-family lending becomes a reality."
"HUD needs to step up to their mandated role of regulating Fannie and Freddie, and make sure they are doing the job that they were created to do," Cincotta said.
Senators Byron Dorgan of North Dakota and Harry Reid of Nevada - who commissioned an extensive General Accounting Office (GAO) study of the far flung the Federal Reserve System earlier this year - are now moving on the legislative front to make the system more accountable and less wasteful.
On July 26, the two Senators introduced the "Federal Reserve Fiscal Responsibility Act of 1996 - that would bring the Fed closer in line with the responsibilities and procedures that control the operations and expenditures of other federal agencies.
The legislation would:
1. Require the Federal Reserve to come to the Congress for annual appropriations to finance all of its activities with the exception of those directly associated with monetary policy. (This would mean that more than 90 percent of the Fed's operations would come under annual scrutiny by Congress.);
2. Return more than $3.7 billion of public funds held as surplus by the Federal Reserve to the U. S. Treasury;
3. Require annual independent audits of the 12 Federal Reserve district banks and their 25 branches; and
4. Require the Federal Reserve to adhere to the same procurement and contracting rules that apply to other federal agencies.
Introduction of the Dorgan-Reid legislation follows the release of the GAO study in March which raised major questions about management and construction, personnel and operating costs and procedures of the Federal Reserve System.
Overall, the report found that during the late 1980s and early 1990s that Federal Reserve expenditures jumped more than twice the rate of inflation. Between 1988 and 1994, employee benefit costs in the Federal Reserve System rose almost 100 percent compared to 60 percent for the rest of government. The report revealed high staff salaries with more than 120 employees actually making more than the statutory maximum of $133,600 for Federal Reserve Board Chairman Alan Greenspan. Salaries for the 12 Federal Reserve District Bank Presidents ranged from $159,600 to $229,600.
Dissatisfied with the slow pace and arcane procedures of the Congress, the Federal Reserve Board has decided to act as its own "legislature" and give banks vast new powers to engage in the securities business.
Under new regulations proposed by the Fed, holding company affiliates of banks could derive up to 25 percent of their income from securities activities. For years, the Board has interpreted the law as prohibiting any bank affiliate from deriving more than 10 percent of its income from securities. The Fed's regulations also propose removing some "firewalls" between banks and their securities subsidiaries.
The Federal Reserve action largely usurps legislative efforts pending in both the House and Senate which would roll back the restrictions of the Glass-Steagall Act that prevent expansion of bank securities powers.
Both the Banking and Commerce Committees in the House reported legislation last year which would modify the Glass-Steagall restrictions. The legislation has been kept off the floor of the House because of unrelated disputes between banks and insurance agents over who can sell insurance where. Senate Banking Chairman Alfonse D'Amato has introduced a more expansive version which repeals Glass-Steagall, but has not yet conducted hearings.
The Federal Reserve's decision to legislate by regulation may dampen whatever Congressional enthusiasm remains for Glass-Steagall repeal. It also neatly wipes out opportunities for members of Congress and public interest groups to insist on consumer and safety soundness safeguards to accompany any legislative expansion of securities powers.
The Federal Reserve's decision to act without new statutory authority follows recommendations of the Shadow Financial Regulatory Committee, an advisory group composed of bankers, bank lawyers and academics.
Earlier this year, the Shadow Committee issued a report which argued that the "best opportunity for financial deregulation lies in the effective use of the discretionary authority of the regulatory agencies." (See "Glass-Steagall Repeal by Fiat" in the February, 1996 issue of the Nader Letter)
Bank spokesmen were clearly elated that the Fed had taken the gavel from the Committee Chairmen and moved independently to meet bank desires.
Larry LaRocco of the ABA Securities Association and a former member of the House Banking Committee commended the Fed for its "speedy action." Richard Whiting general counsel of the Bankers Roundtable, an organization supported by big banks, was quoted as calling the Fed's move a "progressive step toward a more competitive and efficient securities market."
The general counsel of J. P. Morgan, Rachel Robbins, called the action "long overdue" and said her institution was "gratified the Fed is responding to the industry's request for greater flexibility."
Comments on the new rules will be accepted by the Federal Reserve until September 30. Members of Congress, including members of the two Banking Committees, will be allowed to send in comments including copies of their legislation.
The General Accounting Office may have started a gold rush when it released a report revealing that the Federal Reserve had quietly squirreled away $3.7 billion of its earnings in a "surplus fund."
Learning of the surplus, the House Banking Committee on July 25 voted to use some of the money to help recapitalize the Saving Associations Insurance Fund (SAIF) and help retire the Financing Corporation (FICO) bonds that were used in a failed attempt to bail out the savings and loan industry without using tax money.
The next day, Senators Byron Dorgan and Harry Reid introduced legislation to require the Federal Reserve to return the surplus to the Treasury where the GAO said the money would have a "positive budgetary impact."
Look for other grabs for the gold in coming days.
The Federal Reserve has stated in its publications that the purpose of the surplus is to ensure that adequate capital is available to absorb "possible losses." But, as the GAO points out, the Federal Reserve has not had any losses for 79 years.
More important, the Federal Reserve, in the process of buying and selling government securities in its open market operations, rakes in about $20 billion annually in interest from the Treasury. It subtracts its expenses - about $3 billion annually - and returns the rest to the Treasury. With these earnings, as the GAO notes, there is no need for the Fed to stick a $3.7 billion surplus in its mattress.
Despite a year of stumbles in the House Banking Committee and months of silence from the Senate Banking Committee, "regulatory relief" legislation remains alive as a possible agenda item in the final weeks of the 104th Congress.
The Senate Banking Committee bill - pared down sharply from the original monster legislation introduced by Senators Richard Shelby and Connie Mack - may come up on the Senate floor with short notice.
The only obstacle at the moment is Senator Mack's objections to key provisions of a major reform of the Fair Credit Reporting Act (FCRA). Senator Richard Bryan, sponsor of the amendment on FCRA, is vigorously opposing Senator Mack's efforts to gut the legislation.
On the House side, Banking Chairman Jim Leach still can't find a way to bring his modified regulatory rollbacks to the floor over a roadblock constructed by the insurance agents. The agents still want a statutory freeze on the authority of the Comptroller of the Currency to extend the banking industry's role in insurance.
But the House Committee is moving forward - with some success - on a bill to recapitalize the Saving Associations Insurance Fund (SAIF) and assure the retirement of the Financing Corporation (FICO) bonds voted by the Congress in 1987 in a failed attempt to bail out the savings and loan industry without using tax funds.
It appears likely that Chairman Leach will attempt to link the regulatory rollbacks to the SAIF legislation at some point. The move would be based on theory that the rescue of the SAIF and the FICO bonds would be regarded as "must" legislation by a bi-partisan majority of the House and supported strongly by the Clinton Administration. These forces, the theory goes, would overwhelm any last-minute roadblocks by the ever present insurance agents and their friend, Rules Committee Chairman Gerald Solomon.
But, Leach's career as Chairman is filled with "sure things" that turned into disasters. So, the oddsmakers are reluctant to post good odds yet on the SAIF-regulatory rollback combination. Another possibility would be for the House to await action by the Senate and simply take the Senate passed version and send it to the President.
The banking industry stepped up its support for Leach's package in mid-July with letters to members of the House. The letters, signed by the American Bankers Association (ABA) and the Independent Bankers Association of America (IBAA), asked members to sign on to a group letter urging Majority Leader Dick Armey to schedule the legislation for floor action.
The letter signing was being coordinated by Republican Representatives Frank Cremeans of Ohio, Steve Largent of Oklahoma and James Talent of Missouri.
The two Banking Committees have a long tradition - followed by various Chairmen of both parties - of acting in the last hours of a Congress on major legislation, often leaving the media, the banking industry and consumers to unravel the outcome after everyone has left town. It would be no great surprise if the 104th Congress produced another of those midnight runs by the Banking Committees.
A MESSAGE FROM RALPH NADER:
The slash and burn approach of the 104th Congress has produced a long list of foolish, counter productive and, often, dangerous cuts in the federal budget.
But, few top the irresponsibility of the budget cutters who have applied a blunt meat axe to the General Accounting Office (GAO), the only full-time non-partisan watchdog over waste and abuse in government programs.
When the appropriations process is finished this year, the 104th Congress will have reduced the money for GAO by 25 percent from the fiscal year 1995 levels. This will leave GAO with 3,500 employees, down more than a third from 1992 levels and the lowest staff level since before World War II.
What kind of nonsense is this from a Republican Congress that has told the American public ad nauseam about the need to identify poorly run programs and to weed out waste and abuse in the federal government.
If the Congress is truly serious about objective evaluations of taxpayer-supported programs and the efficiency of the federal bureaucracy, the GAO should be strengthened, not weakened.
The 104th Congress sounds like a city council that promises to fight crime and, then, announces that it is eliminating a third of the police department to save money.
The Congress has always had a bitter-sweet relationship with GAO. The agency is an arm of the legislative branch, but many times through the years, GAO evaluations have gored pet projects of powerful members. Big defense contractors have been less than thrilled when GAO auditors questioned the value of multi-billion dollar weapons systems.
For example, just a few weeks ago, the GAO released a study which questioned the overblown claims of the Pentagon and arms merchants about the effectiveness of high-technology weapons used in the Persian Gulf War. GAO said statements of military officers and arms makers about the weapons were "overstated, misleading, inconsistent with the best available data, or unverifiable."
Those blunt conclusions were the product of the GAO's program evaluation division which will be dismantled under the budget cuts. And this may not be regarded as bad news for those members of Congress who regularly carry the Pentagon's water.
While military weapons swallow massive amounts of tax money annually, the greater danger in the downsizing of GAO may lie in the loss of an effective watchdog over regulators who have responsibility over financial institutions operating with two trillion dollars of taxpayer-backed deposit insurance funds.
In the 1980s, the General Accounting Office was often alone in contesting the rosy scenarios that Federal Home Loan Bank Board Chairman Danny Wall fed Congress and the American public about the condition of the savings and loan industry and the insurance funds.
GAO stuck by its evaluations even though the Executive and Legislative branches were in a total state of denial about the impending disaster.
In the cleanup of the savings and loan failures and in fashioning reform legislation for both S&L and bank regulation, GAO was a daily advisor to the House and Senate Banking Committees. Many regulatory improvements - including requirements for independent audits and an early warning system of financial troubles - can be traced to GAO's recommendations.
The importance of GAO in monitoring the financial regulatory agencies is magnified by the reality that these agencies - and their bank constituents - operate under procedures and policies that maximize secrecy. Examination reports (and anything the agencies decide is related to the reports) are hidden from the Congress and the public.
Like the defense industries, the banking industry is not happy that GAO can provide an independent judgment on what's needed for effective regulation. The industry prefers to deal with its friends in Congress without the analysis from GAO.
A few years ago, for example, the bank trade associations circulated so-called independent studies supporting the industry's call for deregulation and elimination of many consumer and community protections. GAO examined the studies and concluded that the methodology was flawed and conclusions suspect. Such debunking of expensive industry propaganda doesn't build support for GAO among the banking industry's friends in high places on Capitol Hill.
Unfortunately, Comptroller General Charles Bowsher - the GAO's chief - must retire in September when his 15-year term expires. He has been a highly respected leader of GAO with a reputation for calling the shots fairly and accurately without regard for whose ox might be wounded.
With elections looming, it is unlikely that the Republican Congress will take action on any nominee that President Clinton sends up when Bowsher departs. This means that the agency will be missing key leadership for an extended period. This fact - combined with the budget and personnel cuts - endangers the effectiveness of GAO and greatly diminishes accountability in government.
The media - which has made good use of GAO investigative reports - has, for the most part, watched silently while Congress dismantled one of the few available sources of objective information about the operations of the federal government. Shame on an industry that bleats constantly about the need for a free flow of information.
Likewise, members of Congress - who have used GAO's resources to support legislative and oversight efforts - have done little to defend GAO or to fight the cuts.
The taxpayers will pay a heavy price for the downsizing of the government's watchdog. How a member of Congress voted on the GAO appropriations in Committee and on the floor of the two Houses should be highlighted on every good government voting guide that is published this fall.
Voters should ask their Senators and representatives why they didn't speak up for GAO - and for an effective watchdog for the taxpayers. It ought to be a key issue in judging the 104th Congress.